In an uncertain economic climate, the federal government banks on hope

Almost any budgetary process is an exercise in optimism. The federal government hopes it can hold the line on program spending. It hopes the global economy is on the road to a better place. Mostly, it hopes things don't get worse.

In a world awash in uncertainty, that can be a risky bet.

"The risks are only to the downside," said Kevin Page, president of the Institute of Fiscal Studies and Democracy at the University of Ottawa.

The Fall Economic Statement (FES) is built on economic projections from multiple economists across the country. 

Those projections indicate real GDP growth will slow to around 0.3 per cent this year but suggest Canada will avoid a recession. The statement indicates inflation will average 3.8 per cent this year and 2.5 per cent next year and the unemployment rate will peak at roughly 6.4 per cent in 2024.

That weakness is being felt across the country as prices and interest rates rise, and as the economy slows.

Finance Minister Chrystia Freeland knows just how pinched Canadian households feel right now.

"Canadians are worn out, frustrated and feeling the squeeze," she said in a speech to Parliament. "What Canadians deserve today is for us to address the very real pain that so many are feeling — with a hopeful and achievable vision for our country's future."

But all that uncertainty is weighing on the economy. For years now, the economic data have consistently surprised economists.

So what if the feds' forecasts are wrong?

The FES lays out what it calls a "downside scenario." It shows what would happen if the economy weakens in the months and years ahead.

The downside scenario built into the economic statement foresees a "mild recession". 

Under that scenario, inflation would remain "stuck" around 3 per cent until next fall. The Bank of Canada would raise rates another quarter point, GDP would decline by 1.7 per cent, unemployment would rise to 7.1 per cent.

After the last three years of economic volatility, that "downside scenario" is not very far-fetched at all.